Opinions
Bill Harris, CFA
Sherritt International Corp.
S-T
DON'T BUY
May 10, 2016
$0.840
Stock price when the opinion was issued
integrated mines
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DON'T BUY
This is a zero, although not priced there yet. That is where it is going. It has been a lousy company for a long time. Madagascar will prove to be their undoing. They defaulted on their debt in February. Their debt is currently worth 54 cents on the dollar so the stock is worth zero.
integrated mines
RISKY
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research
It is certainly not beyond possibility. Bloomberg default ratio is 7.36%, which is very high for that indicator. Cash flow was negative in the last quarter, yet 12-month interest expenses were $36.1M net. With its small size and Cuban and other issues, we are not sure it could raise a lot of money with a dilutive equity issue. Most debt matures in 2026. Certainly any investment here needs to be considered extremely risky.
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integrated mines
Had owned the 8% bonds for very specific reasons. Cuba is essentially a ringed fence and so is the Manitoba smelter. There was $600 million in debt, and he thought the coal assets in Western Canada were worth $1-$1.5 billion. Bond agencies wouldn’t rate this because they didn’t know how to rate the Cuban risk. He didn’t care about that risk because it was offset by the Western Canadian coal. On the hint the company was going to sell the coal, he got rid of the bonds as fast as he could. You are now exposed to the Cuban issue, which is a wildcard. Madagascar, depending on the nickel price, might never make money.